J.C. Penney Store Revival
J.C. Penney store. REUTERS

Fitch Ratings downgraded J.C. Penney Co. Inc.'s debt rating to junk status, expressing skepticism about the retailer's ability to reverse declining revenue with a highly-publicized makeover.

The Plano, Texas-based company's issuer rating and $3.1 billion of unsecured debt now sits one step below investment grade, lowered to BB+ from BBB-. Fitch also lowered the rating of Penney's $1.5 billion in secured bank debt to BBB- from BBB.

The ratings company said Penney's faces uncertainty in 2012, after the retailer's chief executive Ron Johnson outlined a new business approach through lower prices, nixed weekly sales and revamped store layouts by 2015. Fitch expressed skepticism the new-look J.C. Penney could retain its customer base and turn around dropping revenue.

It expects Penney's revenue to dip this year as it transitions to its new business model, while also clearing out current inventory.

Things are likely to get worse over the near term, Monica Aggarwal, a Fitch analyst in New York, wrote in a note to clients, according to Bloomberg, adding the switch in business models may cause a revenue slump.

Johnson, who came to the retailer after establishing Apple's booming chain of stores, said the company will handle the $1 billion makeover on its own dime.

Shares of J.C. Penney rose 37 cents to $41.72 in midday trading.